The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly

Abstract

We consider the effects of antidumping law when utilized by competitive domestic petitioners against a foreign monopolist. The foreign monopolist must set capacity before the realization of random foreign demand, but can reduce the cost of holding excess capacity in periods of slack foreign demand by dumping on the domestic market. With the introduction of antidumping law in the domestic market, domestic firms are shown to file suits in periods of sufficiently slack foreign demand, reducing the volume of imports directly in such periods. Moreover, this occasional filing activity raises the cost to the foreign monopolist of holding excess capacity and, in so doing, results in a scaling back of foreign capacity. Thus, the volume of imports is generally reduced by the introduction of domestic antidumping law, even in periods where no suit is filed. Finally. we consider self-enforcing agreements between the domestic industry and the foreign monopolist that take the form of a promise by the domestic industry not to file in exchange for a promise by the foreign monopolist to export no more than a pre-specified amount: We show that these agreements narrow the range of demand states over which suits are filed to only the softest states of demand, and lead to greater foreign capacity, hence partially mitigating both the direct and indirect impact of antidumping law on trade volume.